Advanced Micro Devices reached profitability for the first time in three years during the fourth quarter of 2009, benefiting from a legal settlement with Intel and a change in its business model, the company said on Thursday.

The company reported net income of US$1.18 billion during the quarter that ended on Dec. 26, an improvement over the loss of $1.44 billion it reported in the fourth quarter of 2008. The company reported diluted earnings per share of $1.52.

AMD reported revenue of $1.65 billion for the fourth quarter, a gain of 42 percent compared to the same period last year. The revenue beat estimates of analysts polled by Thomson Reuters, who expected revenue of $1.5 billion.

Revenue was driven by a healthy holiday sales period for PCs using its chips and increased demand for its Radeon graphics cards, AMD said. The $1.25 billion Intel paid AMD in November to settle a lawsuit also helped. AMD had accused Intel of offering rebates that kept AMD from making deals with PC makers.

Microprocessor revenue during the quarter was $1.2 billion, up 14 percent compared to the same quarter of the previous year. Graphics segment revenue was $427 million, up 40 percent.

"AMD's quarter marks another milestone in our transformation and underscores our growing momentum," said AMD CEO and President Dirk Meyer in a statement.

AMD suffered three years of consecutive losses as it failed to launch chips as scheduled and, more recently, because of lower chip sales during the recession. The company also took billions of dollars in charges related to the acquisition of graphics firm ATI in 2007.

In an effort to turn things around, AMD divested assets, cut staff and re-established itself as a chip design firm by spinning off its debt-heavy manufacturing facilities to a separate entity now known as GlobalFoundries. AMD remains a minority shareholder in GlobalFoundries.

"We're pleased with our progress," Meyer said during a conference call to discuss the financial results. The company ended fiscal 2009 on a high note, which has positioned it for stronger growth in 2010. AMD released chips on time and shed close to $2.2 billion in debt off its books over fiscal 2009.

The company is also signing new customers to sell its chips. which could result in more revenue, Meyer said. One of AMD's big signings in the fourth quarter was Lenovo, which will offer AMD chips in its ThinkPad laptops for the first time. AMD now has the top five PC makers worldwide as its customers, including Hewlett-Packard, Dell, Acer and Toshiba.

The company shipped a record number of laptop processors and chipsets during the fourth quarter, Meyer said. Notebook revenues were up 19 percent sequentially.

Laptop CPU sales gained steam as PC shipments grew in double digits, he said. That momentum should carry over into 2010, he said, when new laptop chips in the first half of the year should also boost sales.

Server chip sales increased in the second half of 2009, but it's hard to predict if the momentum will carry into this year, Meyer said. The six-core Opteron processor code-named Istanbul accounted for 60 percent of fourth-quarter server revenue and 47 percent of server units shipped.

AMD is also preparing to ship Istanbul's successor, the 12-core Magny-Cours chip. Meyer said the processors are targeted at dual-socket servers, but he didn't provide an exact ship date. The company has said it would ship Magny-Cours in the first quarter this year. It will be followed by the 16-core Interlagos chip in 2011.

Analysts on the call asked whether AMD was ready to divest its minority stake in GlobalFoundries. Meyer didn't directly answer the question, but said the relationship with GlobalFoundries will mainly involve the purchase and sale of silicon wafers.

GlobalFoundries was formed in March after AMD spun off its manufacturing unit in a joint venture with Advanced Technology Investment Co. (ATIC), an investment fund controlled by the Abu Dhabi government. After having AMD as its only customer for more than 100 days, GlobalFoundries now claims more than 150 customers including Qualcomm, STMicroelectronics and IBM.

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